The Hindu Business Line : `Rising rates will impact commercial vehicle sales'

Mumbai April 18 Rising interest rates are sure to bite into sales of commercial vehicles with the pain being felt already in a small way, according to Mr Ravi Kant, Managing Director of Tata Motors, the country's largest commercial vehicles producer.

In an interview to Business Line here today, Mr Ravi Kant said: "Commercial vehicle growth rate has to come down but by how much is difficult to estimate now. The dissonance in March sales for the industry was partly due to this and partly due to the base effect (higher sales in March 2006)." Prime lending rates of leading banks have increased by about 2 percentage points in the last four months to around 15 per cent now and will hit all hire purchases of commercial vehicles.

Growth in commercial vehicle sales for the entire industry halved in March to 13 per cent from 26 per cent in February, going by figures put out by the Society of Indian Automobile Manufacturers (SIAM). The March figure also compares rather poorly with the April 2006-February 2007 growth of 36 per cent. Commercial vehicle sales traditionally peak in March every year.

However, Tata Motors, thanks to its conscious de-risking strategy followed over the last few years, has adequate hedge to protect itself from a possible fall in commercial vehicle sales, Mr Ravi Kant said. The Ace, whose sales graph has hit a one-way soaring street since it was launched, is one such hedge while the international business of the company, which accounts for about 15 per cent of revenues, is another.

Earnings under pressure

He said earnings of companies across industries would come under pressure soon with the impact being felt from the third quarter of this fiscal. "The rate hikes are coming at a wrong time when the capex cycle is at its peak and will lead to a higher burden on companies. There is a time lag of three to four quarters after which it will begin to be felt on the bottomlines. We will begin to see the impact from the third quarter results and the effect will last for at least three to four quarters after that," he said.

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